Host Hotels (HST) Beats On Q1 FFO And Revenues, Raises View

Host Hotels & Resorts, Inc. (NYSE:HST) reported first-quarter 2018 adjusted funds from operations (FFO) of 43 cents per share, which outpaced the Zacks Consensus Estimate of 41 cents. However, the adjusted FFO per share fell shy of the year-ago quarter tally of 44 cents.

Results reflect margin improvement through better productivity. However, the year-over-year decline mainly reflects increase in interest expenses and additional tax expenses. The company has also raised its outlook for full-year 2018.

The company generated total revenues of around $1.35 billion, which surpassed the Zacks Consensus Estimate of $1.33 billion, but marginally (0.1%) slipped from the year-ago tally. The year-over-year decline mainly reflects the impact of dispositions of five hotels in 2017 and in early 2018.

Notably, during the quarter, Host Hotels completed the acquisition of 301-room Andaz Maui at Wailea Resort, 668-room Grand Hyatt San Francisco and 454-room Hyatt Regency Coconut Point Resort and Spa for $1 billion.

Quarter in Details

During the reported quarter, comparable hotel revenues increased 1.5% year over year to nearly $1.3 billion. Comparable hotel revenue per available room or RevPAR (on a constant dollar basis) was up 1.7% year over year, driven by a 170 basis points (bps) expansion in occupancy, partly offset by a 0.6% decrease in average room rate. For domestic properties, comparable hotel RevPAR was up 1.6% while the same for International properties climbed 9.3%.

For the first quarter, comparable hotel EBITDA increased 3.7%. Comparable hotel EBITDA margin improved 60 bps, reflecting improvement in operating efficiencies, higher ancillary revenues and a tax rebate at one property.

Finally, the company exited first-quarter 2018 with around $323 million of unrestricted cash and $511 million of available capacity remaining under the revolver part of its credit facility. In addition, as of Mar 31, 2018, total debt was $4.3 billion, having an average maturity of 4.8 years and an average interest rate of 3.9%. Notably, the company has no debt maturities until 2020.

Host Hotels did not buy back any shares in 2018. It has $500 million of capacity available under its current repurchase program.

Capital Investments

During the first quarter, the company expended around $115 million on capital expenditures — $29 million was return on investment (ROI) capital projects and $86 million for renewal and replacement projects.

Outlook

Host Hotels has raised its outlook for full-year 2018. The company now expects 2018 adjusted FFO per share in the range of $1.67-$1.73, denoting a 5 cents increase at the midpoint from the earlier guidance of $1.60-$1.70. The Zacks Consensus Estimate for the same is currently pegged at $1.67.

The company’s full-year projection includes comparable hotel RevPAR (constant U.S. dollar basis) growth of 1.5-2.5%, reflecting growth of 50 bps at the midpoint. Moreover, the company continues to expect capital expenditures of $475-$550 million for the year. This comprises $185-$220 million in ROI projects and $290-$330 million in renewal and replacement projects.

In Conclusion

Host Hotels is likely to gain from its solid portfolio of upscale hotels across lucrative markets. Strategic capital-recycling program and a healthy balance sheet bode well for long-term growth. Opportunistic acquisitions in top-growth markets in the United States, including Maui and San Francisco, augur well for long-term growth. Nevertheless, supply growth, specifically in the company’s key markets, remains a concern. In addition to this, dilutive impact of asset sales cannot be bypassed. Also, rate hikes add to its woes.

Host Hotels currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

We now look forward to the earnings releases of other REITs like Apartment Investment and Management Company (NYSE:AIV) , EPR Properties (NYSE:EPR) and Realty Income Corporation (NYSE:O) . While Apartment Investment and Management Company is scheduled to release earnings on May 7, EPR Properties and Realty Income are slated to report on May 8.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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